7 Smart Ways to Use Business Credit Cards at a Startup

7 smart ways use business credit at startup

By John Boitnott

If you’re considering launching a startup, small business or purchasing a franchise, then you’re probably thinking about your finances. Perhaps you’ve even thought about how business credit cards can help you finance operations and manage cash flow.

Yet, you want to make sure you make smart business decisions about how and when to use credit. After all, you don't want to put what you’re building at risk.

There are many ways small business owners can use a business credit card. When launching a startup, you can use these cards to maximize available credit, extend cash flow and add value.

Here are 7 smart ways using credit cards could help you as a business owner...

1 - Business credit cards could help build your credit score.

You can use a business credit card to strengthen your business credit score. Even if you have a strong personal credit history, you’ll need to establish a credit score with the business credit bureaus. A strong company credit profile is important should you need to apply for funding down the line.

Each month, as you use your business card to make transactions and make your credit card payments on time, you build business credit. The better your business credit, the easier it could become for you to gain access to other business financing options, such as a small business loan.

For example, the data from your business credit cards can show an investor you repay your credit card bills. It also illustrates what you bought with that credit and how it contributed to the startup’s growth. You can use these cards to establish a solid business credit score and gain better financing rates.

While no one will recommend you make a late payment on a business credit card, unexpected circumstances or mistakes happen. If this occurs, it will most likely only impact your business credit score rather than your personal credit score. You may want to check though because some business credit card issuers do report to personal credit bureaus.

2. Cards can help bootstrap your startup.

Not every startup needs significant cash infusions to get up and running. In those cases, you can bootstrap a business with a combination of savings, current income and funding from small business cards.

Recent surveys of entrepreneurs found that the majority fund startups through savings, family loans and personal or business credit cards.

3. You can earn rewards.

These membership rewards include points redeemable for flights, hotels and other travel rewards. You may also be rewarded with everything from gift certificates to travel experiences and entertainment packages. You can even buy office supplies and equipment with your credit card points, which can be beneficial for startups that need to reduce expenses.

Additionally, there are business credit cards that reward users with cash rebates on purchases. The percentages may vary, with an average between one and three percent (although some may have introductory periods of five percent). This is cash for business that you can redeem as a check. You can then deposit these funds in your business account or apply it to your next credit card payment.

When selecting a business credit card for your startup, consider which rewards will offer the most benefit. For example, if you don’t travel for business, then it’s better to choose a cash-back rewards business credit card. You can then earn points for things you need for the company.

4. Leverage fraud protection on purchases.

Regular debit card, business check or cash purchases can’t protect you from fraud like a business credit card can. This is a valuable feature because it can keep your credit rating safe along with your business assets.

When you’re just starting out, this type of protection can be a lifesaver for your business. You’ll protect your business while making it on a lean budget with minimal cash flow.

Look for a business credit card that offers no deductible for fraud protection and ensures you’re not liable for any fraudulent activity. Some may require you to pay the first $50 in fraudulent charges, which is the maximum allowed by law.

Also, consider a business card that has proactive services in place to stop fraud as it occurs. These features include notifications when unusual activity takes place. Your business card company will alert you when it sees out-of-state or out-of-country charges or an unusually high number of charges.

5. They let you separate business and personal expenses.

It’s important for tax reasons that you account for business expenses and personal expenses in different records. This can make life easier come tax season. That way, you’ll be able to see all your expenditures and deductions in one place.

You’ll need to have a personal credit card and a business credit card to fully separate your finances. You’ll typically see an end-of-the-year summary, showing expenditures by category.

6. They let you consolidate funding sources through balance transfer.

Since business credit utilization is a critical factor in maintaining a good credit score, you will need to carefully watch how much credit you have.

There are some benefits to having multiple business credit cards to extend the amount of credit you have available. However, there is also the danger that using up that credit across multiple cards could put your startup at risk. You can hurt your business if you can’t make all your monthly payments.

This is an ideal time to use business credit to consolidate your debts through a balance transfer. Typically, these offers include a zero interest rate period, which can help you pay this debt down faster than individual payments.

7. You can better track business spending on an individual and team basis.

With a strict credit limit and lean budget in place, it’s important that you track every business purchase you make. That means you’ll need to track employee expenses and spending.

With a business credit card, you get a monthly itemized statement that shows what each cardholder has spent and in what category. This will help you keep a close eye on spending, as well as link certain purchases to specific company departments or projects.

Business credit cards offer apps and online account access that let you check card usage and receive alerts about recent purchases. You can remotely stop these purchases from your team due to cash flow problems, or manage card acceptance or cancellation.

Be business credit smart.

Take the time to research and compare business credit cards. For example, you may pay more fees when using a platinum credit card, but may reap more rewards.

Credit card issuers are only too happy to extend your credit if you have a good credit score. That doesn’t mean you need to accept all of it, however. Nor does it mean you should overextend yourself with a large credit card balance each month. That’s because the average interest rate on a business credit card is 15%, which means significant costs to borrow money and carry a balance.

Use credit cards wisely, and you can reap significant benefits - greater cash flow, effective money management, and additional funds to invest in your startup.

About the author

John Boitnott is a longtime digital media consultant and journalist who covers technology trends, startups, entrepreneurship and personal finance for Inc, Entrepreneur, Business Insider, USA Today and other major publications.

Written on August 29, 2019

Self is a venture-backed startup that helps people build credit and savings. Comments? Questions? Send us a note at hello@self.inc.

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